Party City’s founder blames bankruptcy on private-equity firms

The founder of Party City blamed the retailer’s collapse into bankruptcy on mismanagement by private equity firms — claiming that they jacked up prices despite the company’s roots as a discounter.

Steve Mandell, who launched the chain in 1986 with a single store in East Hanover, NJ, pinned the retailer’s implosion on a lack of bargains and variety at its stores — a problem he claims was created when private equity executives locked it into a large supply deal with a manufacturer they already owned for roughly 80% of its supply.

“They [new owners] took out the top two things that made this company very special,” Mandell told The Post in an exclusive interview. “First, we were the discount party superstore. Today, it is not a discount store. The prices are top dollar.”

“Second, Party City had great variety,” he added.

That changed in 2005, according to Mandell, when Party City was bought by private equity firms Berkshire Partners and Weston Presidio. They also owned the party supply manufacturer Amscan, essentially giving it a monopoly.

“Party City did away with competition,” the 78-year-old Mandell said. “All of the innovation is long gone. That is a huge problem.”

Still, the model worked for nearly two decades. In 2012, Thomas H. Lee Partners bought the company for $584 million down in a $2.69 billion deal, investing only 22% in equity. The following year, the owners had Party City borrow $338 million to pay themselves a dividend.

Party City’s leading market position and 35% profit margins made it relatively easy for a few years to take the excess cash to pay loans. Then the company went public in 2015, and its market share began to erode from big-box competitors like Walmart, Target and pop-up shops like Spirit Halloween.

It also didn’t have much wiggle room to offer better prices than its rivals.

“If you can’t afford to give discounts, maybe you can’t afford to be in business,” Mandell told The Post in a phone interview from his home in Florida.

Profits fell sharply in the last several years.

The leveraged buyouts and the loans helped balloon the company’s debt to $1.67 billion before Party City filed for bankruptcy last week. The chain has 823 stores nationwide and 16,330 full- and part-time employees.

“Party City’s financial restructuring will address a legacy debt load that predates the Company’s IPO in 2015 and enable the business to emerge financially stronger and better positioned to build on its market leadership,” a Party City spokesperson told The Post on Wednesday.

Private equity firms Thomas H. Lee and Weston Presidio declined comment. Berkshire Partners did not return calls.

Party City CEO Brad Weston blamed inflation and supply chain issues for the company’s failures. Mandell claims he was blown off by Weston three years ago after trying to offer advice.

“The average sale price is too low for inflation to have a big impact,” Mandell countered. “It’s a great excuse.”

He pointed to Party City’s failures to maximize profits during the key Halloween period, which represents about one-quarter of the company’s sales.

“Spirit Halloween opened 1,400 stores this fall and were unfazed by the pandemic,” Mandell said. “Party City had 100 Halloween City pop-up stores.”  

Mandell lost control of the company he founded in 1999 — three years after taking the company public. He had blamed the then-CFO for not tracking inventory correctly, leading the company to not file a 1998 audit on time.

That caused its shares to crash, and investor Michael Tennenbaum took control of the business for a relatively low price after it was delisted.

Mandell is now planning his next venture, a cookie company that makes personalized treats for corporate clients, weddings and birthdays. He will launch Incredible Cookies.com next month.

“No one is focused on this space,” Mandell said.